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Cost-of-Living Adjustment (COLA)

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Each December, the CPF Board determines whether a COLA should be granted under the defined-benefit retirement plans* (collectively, the Plans) administered by The Church Pension Fund (CPF). A COLA is a discretionary adjustment that is intended to assist retirees and beneficiaries by offsetting (or helping to offset) the annual rate of inflation. Cost-of-living increases are not mandated by Plan rules; in fact, among pension plans comparable to The Church Pension Fund’s, granting a COLA is actually quite rare.

The CPF Board may grant a COLA under select Plans when inflation justifies it and the financial condition of the relevant Plan allows for it. The CPF Board relies on outside experts and resources to determine whether economic conditions with regard to inflation support an increase in benefits. For guidance on inflation, it has been our practice to look to the U.S. Bureau of Labor Statistics’ Consumer Price Index, which also is the basis for the Social Security Administration’s annual COLA determination. The CPF Board realizes that the Consumer Price Index may not be a perfect proxy for retiree living expenses in every case, but it is the most well-recognized and objective measure available, so the CPF Board continues to see value in referring to it when making its COLA decisions.

To evaluate the financial strength of its Plans, CPF stress tests them using sophisticated financial models to determine whether each Plan can support the granting of a COLA without compromising its financial strength over the long term. In its final decision-making, the CPF Board weighs carefully the results of these analyses because when a COLA is granted it results in increased payments to all retirees and beneficiaries in perpetuity, thus creating a permanent liability (or strain) on the applicable Plan. These tests are designed to protect the long-term viability of the Plans and to ensure the continuity of pension payments received by retirees and beneficiaries.

* The Church Pension Fund Clergy Pension Plan, The Episcopal Church Lay Employees’ Retirement Plan, and the International Clergy Pension Plan.

The CPF Board approved an annual 2.8% COLA, effective January 1, 2019, to the monthly pension benefit for retirees and beneficiaries of The Church Pension Fund Clergy Pension Plan and the International Clergy Pension Plan.

The CPF Board did not grant a COLA to retirees and beneficiaries of The Episcopal Church Lay Employees’ Retirement Plan.

Did the CPF Board grant a COLA for 2019?

The CPF Board approved an annual 2.8% COLA effective January 1, 2019, to the monthly pension benefit for retirees and beneficiaries of The Church Pension Fund Clergy Pension Plan and the International Clergy Pension Plan.

The CPF Board did not grant a COLA to retirees or beneficiaries of The Episcopal Church Lay Employees’ Retirement Plan.

1.

How does the CPF Board determine whether a COLA is granted?

The CPF Board may grant a COLA under select Plans* when inflation justifies it and the financial condition of the relevant Plan allows for it. The CPF Board relies on outside experts and resources to determine whether economic conditions with regard to inflation support an increase in benefits. For guidance on inflation, it has been our practice to look to the U.S. Bureau of Labor Statistics’ Consumer Price Index, which also is the basis for the Social Security Administration’s annual COLA determination. The CPF Board realizes that the Consumer Price Index may not be a perfect proxy for retiree living expenses in every case, but it is the most well-recognized and objective measure available, so the CPF Board continues to see value in referring to it when making its COLA decisions.

To evaluate the financial strength of its Plans, CPF stress tests them using sophisticated financial models to determine whether each Plan can support the granting of a COLA without compromising its financial strength over the long term.

In its final decision-making, the CPF Board weighs carefully the results of these analyses because when a COLA is granted it results in increased payments to all retirees and beneficiaries in perpetuity, thus creating a permanent liability (or strain) on the applicable Plan. These tests are designed to protect the long-term viability of the Plans and to ensure the continuity of pension payments received by retirees and beneficiaries.

* The Church Pension Fund Clergy Pension Plan, The Episcopal Church Lay Employees’ Retirement Plan, and the International Clergy Pension Plan.

2.

Why do you base the amount of a COLA on the U.S. Bureau of Labor Statistics’ Consumer Price Index?

The CPF Board relies on outside experts and resources to determine whether economic conditions with regard to inflation support an increase in benefits. For guidance on inflation, it has been our practice to look to the U.S. Bureau of Labor Statistics’ Consumer Price Index because it is the most well-recognized and objective measure available. It is also the basis for the Social Security Administration’s annual COLA determination. The CPF Board realizes that the Consumer Price Index may not be a perfect proxy for retiree living expenses in every case, but the CPF Board continues to see value in referring to it when making its COLA decisions.

3.

How does CPF ensure that a Plan* has the ability to grant a COLA?

When a COLA is granted, it results in increased payments to all retirees and beneficiaries in perpetuity, thus creating a permanent liability (or strain) on a Plan.

The CPF Board may grant a COLA in select Plans when inflation justifies it and the financial condition of the relevant Plan allows for it. To evaluate the financial strength of its Plans, CPF stress tests them using sophisticated financial models to determine whether each Plan can support the granting of a COLA without compromising its financial strength over the long term. In its final decision-making, the CPF Board weighs carefully the results of these analyses. These tests are designed to protect the long-term viability of the Plans and to ensure the continuity of pension payments received by retirees and beneficiaries.

* The Church Pension Fund Clergy Pension Plan, The Episcopal Church Lay Employees’ Retirement Plan, and the International Clergy Pension Plan.

4.

What prevents The Episcopal Church Lay Employees’ Retirement Plan from being able to receive a COLA?

CPF uses a sophisticated set of financial models and actuarial tools to determine the level of assets in The Episcopal Church Lay Employees’ Retirement Plan (Lay DB Plan) — including the amount of assessments paid — necessary to satisfy its current and future benefit obligations. This testing includes traditional actuarial cost methods that involve a variety of assumptions, such as the number of individuals in the plan and these individuals’ retirement ages, compensation levels, and life expectancies.

Compared to The Church Pension Fund Clergy Pension Plan (Clergy Pension Plan), which has approximately 6,200 participants and was created in 1917, the Lay DB Plan is relatively small. It was created in 1980, meaning that it has had much less time to accumulate investment income and to reinvest that income, and has approximately 1,100 participants (about 13% of the total eligible active lay employee population).

In addition, it was not until 2006 when the Lay DB Plan assets had access to the full range of asset classes available to the Clergy Pension Plan. While this action has had a positive impact on the growth of the assets in the Lay DB Plan, our stress tests have shown that the granting of a COLA at this time would compromise its financial strength over the long term.

5.

When was the last time The Episcopal Church Lay Employees’ Retirement Plan received a COLA?

The CPF Board last approved a COLA to beneficiaries in The Episcopal Church Lay Employees’ Retirement Plan (Lay DB Plan) in 2009. To evaluate the financial strength of the Lay DB Plan, which is a newer, smaller plan than the century-old Church Pension Fund Clergy Pension Plan, CPF stress tests it using sophisticated financial models to determine whether it can support the granting of a COLA. Unfortunately, our analysis indicates that the granting of a COLA at this time would compromise the Lay DB Plan’s financial strength over the long term.

We understand that this is disappointing to retirees and beneficiaries in our Lay DB Plan, but we believe that it is the best decision we can make to protect the long-term viability of the Lay DB Plan and the continuation of pension payments retirees and beneficiaries receive.